A new pipeline is born on the Balkans – Bulgaria, Greece, and Romania will build a “Vertical Interconnector”

“The gas map of South-Eastern Europe is changing”. These are the words of the Bulgarian deputy prime-minister Tomislav Donchev at a working meeting on 22 April in Sofia. A three-side working group consisting of representatives from Romania, Greece, and host nation Bulgaria convened in the capital in order to initiate the construction of a “Vertical Gas Interconnector”. The project is designed to connect the three countries’ existing gas infrastructures in the south-north axis. The meeting could not have a better timing as just on the same day the European Commission filed official charges against Gazprom’s abusive market practices while the company’s director Aleksey Miller was still in Greece discussing the Turkish Stream pipeline with Alexis Tispras.

An agreement was signed outlining the principles under which the project will be developed. The first part of the pipeline will connect Komotini in Northern Greece with Stara Zagora in Central Bulgaria where it will join the existing internal infrastructure. A second pipeline will later be constructed in the north of Bulgaria with end point the city of Russe on the Romanian border completing the interconnector corridor.

The first section between Greece and Bulgaria will cost roughly 220 million Euro and the expected capacity will be between 3 – 5 billion cubic meters. The energy ministers of the two countries agreed that the project can start as early as March 2016 with possible completion deadline in 2018.

Where will gas come from?

The most important question for any pipeline is where the gas will flow from. In line with the EU Southern Corridor strategy, the projected source for this interconnector will be the Caspian basin. Most probably the main source will be the Shah Deniz field in Azerbaijan. However, if in the future the relationship between Iran and the West will continue to improve we can see Iranian gas flowing to Europe. Of course, this scenario is still highly hypothetical for the time being.

The second source of blue fuel envisioned in the project are LNG terminals in Greece. The country has only one built next to Athens and a second one under development close to the port of Kavala in the north. The later if completed will be very convenient from a cost point of view for the “Vertical Gas Interconnector”.

Thirdly, also hypothetically speaking, if Gazprom may someday fulfill all requirements of the Third Energy Package, Russian gas could flow freely in the European pipeline network in any direction. In this sense, the idea of the interconnector is to allow flows in both southern and northern direction and as such it can be used to buy, sell or just transport the fuel to different markets.

Why does the project come only now?

At first glance the interconnector seems like a very logical project. Furthermore, the distances are relatively short and the cost is relatively low. The idea is not new; the first memorandums were signed in 2009.

The only element lacking so far was political will. Several Bulgarian governments have been flirting with Moscow on a number of energy projects – South Stream pipeline, Belene nuclear power plant, Burgas-Alexandrupolis pipeline. All of those have now come to an end leaving only costs to the Bulgarian taxpayer.

The Vertical Interconnector is a part of the trans-European gas strategy of the EU connecting the Southern Corridor to the network in Central Europe. But Bulgaria was never really encouraged to develop the project. Since the relationship between Russia and the EU, and particularly some of its most influential member states like France, Germany, and Italy, remained benign, there was little motivation to invest into altering the energy status quo. The Commission “closed its eyes” when member states were concluding bilateral agreements with Moscow about South Stream and generally put little priority on following its own energy strategy. Even the 2006 and 2009 gas wars between Ukraine and Russia did not provide enough incentives to speed up energy policies and cooperation in the EU.

What changed?

The last year brought a significant turn of events. The looming crisis in Ukraine which the EU blames mainly on Russia did most of the work which a decade before did not. We saw a Europe more wary of Russian assertiveness, a Europe which was compelled to impose sanctions on Moscow. Germany which has been the advocate of “good tone” with the Kremlin is becoming increasingly disillusioned. There should be no surprise to observe how the EU is now tightening its control over its own energy infrastructure which is ultimately the lifeline of its economic power.

Over the past year many signals indicated that the EU wants to buy energy on its own terms. We should recall – the initiation of the Energy Union; the firm position against South Stream in Bulgaria on grounds of not satisfying the Third Energy Package; the two year long investigation against Gazprom’s monopoly culminating in the formal charges on 22 April.

In this general spirit, the Vertical Interconnector could no longer be postponed. Bulgaria was demonstratively expelled from the South Stream project by Mocow and the Russians are now designing their Turkish Stream alternative (read also: http://voxorientalis.com/pipeline-puzzles-on-the-balkans/). The EU’s response is deepening the energy market liberalization. Therefore the interconnector is vital for the EU’s Balkan members – Bulgaria, Romania, and Greece. One fact is certain, there cannot be any common market if there are no common pipelines in which the fuel will flow.

Bulgaria was tempted to be a part of Gazprom’s grand projects as were Hungary, Slovenia, Austria, Serbia, and Italy. However, the country does not really need a major new pipeline. Neither it needs another project with the same gas source. Bulgarian economy is anyway 96% dependent on Russian energy supplies. The country needs interconnectors and a market where prices are freely negotiable rather than dictated. Bulgaria also needs major investments in its aging energy infrastructure as it has the biggest energy waste margin in the whole EU.

If by 2018 gas can freely flow in both north and south direction through Bulgaria, Greece, and Romania, energy security will be enhanced in the region. We are yet to see if this project will develop within its time frame. The high level working group has pledged to meet at least biannually to supervise the project. The next meeting is scheduled to be in June in the Romanian capital Bucharest.